(1) Liberty Syndicate Management Limited & (2) Liberty Corporate Capital Limited v (1) Campagna Ltd & (2) Campagna Limited [2011] EWHC 209 (TCC) 9/2/11

The Facts

The Claimants (Cs) were the corporate and sole members of various Lloyd’s syndicates and their managing agent.  Between 2003 and 2008 Cs underwrote a form of latent defects cover, mainly for residential property, which was known as the Premier Guarantee Scheme (PGS).  Under the PGS the Defendants (Ds) provided technical audit services with respect to newly constructed residential property and issued a Certificate of Approval in respect of the property once the house had been completed to their satisfaction.  Subsequently, when the property was sold, C would issue the policy to the homeowner.  There were two main elements to the cover provided:  five years of cover with respect to the waterproof envelope and ten years of cover with respect to ‘Major Damage’ to the property.  There were numerous claims under the policies in respect of damage to or lack of water tightness of properties built in Ireland and inspected and approved by Ds. 

Cs sued Ds for breach of contract and negligence, alleging that their checks and inspections of the houses fell below the standard of a competent technical auditor and that caused the excessive number of claims made under PGS.  The matter came before the court to determine various preliminary issues relating to the scope of the duty and alleged breaches of it by reference to sample properties. Cs argued that the duties of a latent defects technical auditor was generally analogous to that of a building surveyor whilst D argued that the standard of care was that of a building control inspector.

The Issue

The extent, if at all, to which a competent technical auditor in the position of Ds should have discovered the various defects in the construction of the insured properties.

Held

The case turned very largely on its facts.  It was clear that Ds did not contract to ensure that any building its technical auditors inspected would be defect free.  The duty of the auditors was to take reasonable care during the inspections that they were required to carry out to ensure that each building represented a standard risk from an insurance point of view.  The auditors were not required to check for strict compliance with building regulations, although to the extent that the regulations represented good construction practice, they would be expected to check for compliance so far as the regulations relate to the risks insured by the PGS (i.e. in relation to water tightness and structural stability). The auditors could not be characterised as either building control officers of building surveyors in the sense in which those roles are commonly understood; instead, the role under this engagement, and perhaps generally, was a combination of those two roles.